Net income from continuing operations improved to $0.5 million for
the three months ended September 30, 2017 compared to a net loss from
continuing operations of $(0.4) million for the three months ended
September 30, 2016.Cash and cash equivalents were $38.5 million
at September 30, 2017.

November 13, 2017 04:00 PM Eastern Standard Time

ROANOKE, Va.--(BUSINESS WIRE)--Luna Innovations Incorporated (NASDAQ: LUNA) today announced its
financial results for the three and nine months ended September 30, 2017.

For the three months ended September 30, 2017, Luna reported net income
of $15.8 million compared to a net loss of $(0.4) million for the three
months ended September 30, 2016. Net income for the 2017 period included
an after-tax gain of $15.1 million recognized on the sale of Luna's high
speed optical receivers ("HSOR") business in August 2017. Net income
from continuing operations improved by $0.9 million, to $0.5 million, or
$0.02 per share, for the three months ended September 30, 2017, compared
to a net loss from continuing operations of $(0.4) million, or $(0.01)
per share, for the three months ended September 30, 2016. Adjusted
earnings before interest, taxes, depreciation and amortization
("Adjusted EBITDA") was $0.9 million for the three months ended
September 30, 2017 compared to $0.3 million for the three months ended
September 30, 2016. A reconciliation of net income/(loss) to adjusted
EBITDA can be found in the schedules included in this release.

“We are extremely pleased with our third quarter financial results,"
said Scott Graeff, president and chief executive officer of Luna. "The
combination of positive income from our continuing operations for the
quarter and the significant liquidity provided by the sale of the HSOR
business provides a solid foundation for Luna to continue to drive its
fiber optic test & measurement initiative. I am excited to be taking on
the leadership of the company at this time of high growth potential
within our strategic initiative, supported by a highly dedicated group
of talented employees and a strong balance sheet."

Third Quarter Financial Summary

Total revenues for the three months ended September 30, 2017, were $11.6
million compared to $11.2 million for the three months ended
September 30, 2016. Technology development revenues increased 11% to
$4.6 million for the three months ended September 30, 2017, compared to
$4.1 million for the three months ended September 30, 2016. Products and
licensing revenues remained substantially unchanged at $7.1 million for
the three months ended September 30, 2017 and 2016. The increase in the
technology development revenues for the three months ended September 30,
2017 compared to the three months ended September 30, 2016 was realized
primarily in Luna's intelligent systems research group.

Gross profit was $4.5 million, or 39% of revenues, for the three months
ended September 30, 2017, compared to gross profit of $4.4 million, or
39% of revenues, for the three months ended September 30, 2016.

Selling, general and administrative expenses were $3.3 million for the
three months ended September 30, 2017, compared to $3.8 million for the
three months ended September 30, 2016. The decrease in selling, general
and administrative expense was largely driven by a $0.2 million decrease
in bad debt expense and a $0.2 million decrease in sales and marketing
expenses resulting from lower headcount in the three months ended
September 30, 2017.

Research, development and engineering expenses remained substantially
unchanged at $0.8 million for the three months ended September 30, 2017
and 2016.

Net income from continuing operations improved to $0.5 million for the
three months ended September 30, 2017, compared to a net loss from
continuing operations of $(0.4) million for the three months ended
September 30, 2016. Net income from discontinued operations was $15.2
million for the three months ended September 30, 2017, compared to a net
loss from discontinued operations of $(0.1) million for the three months
ended September 30, 2016. Net income from discontinued operations for
the three months ended September 30, 2017, included the recognition of
the after tax gain on the sale of the HSOR business of $15.1 million in
addition to after tax income of $0.1 million associated with the
operations of the HSOR business prior to its sale. Net loss from
discontinued operations for the three months ended September 30, 2016,
reflect the after tax results of operations of the HSOR business during
the period.

Net income attributable to common stockholders for the three months
ended September 30, 2017 was $15.7 million, compared to a net loss
attributable to common stockholders of $(0.5) million for the three
months ended September 30, 2016. Adjusted EBITDA was $0.9 million for
the three months ended September 30, 2017, compared to $0.3 million for
the three months ended September 30, 2016.

Year to Date Financial Summary

Total revenues for the nine months ended September 30, 2017, were $33.0
million, compared to $30.1 million for the nine months ended September
30, 2016. Technology development revenues increased 14% to $13.4 million
for the nine months ended September 30, 2017, compared to $11.8 million
for the nine months ended September 30, 2016. The increase in technology
development revenues was primarily as a result of increased sales in
Luna's intelligent systems, nanomaterials, and biomedical technologies
groups. Products and licensing revenues were $19.6 million for the nine
months ended September 30, 2017, compared to $18.3 million for the nine
months ended September 30, 2016. The increase in Products and Licensing
segment revenues was primarily driven by an increase in Luna's sales of
optical backscatter reflectometer instruments and optoelectronic
components.

Gross profit increased to $12.8 million, or 39% of revenues for the nine
months ended September 30, 2017, compared to $11.1 million, or 37% of
revenues, for the nine months ended September 30, 2016.

Selling, general and administrative expenses decreased to $10.3 million
for the nine months ended September 30, 2017, compared to $11.3 million
for the nine months ended September 30, 2016. The decrease in selling,
general and administrative expenses year to date was primarily related
to a $0.2 million decrease in bad debt expense, a $0.2 million decrease
in share based compensation expense, and a $0.4 million decrease in
sales and marketing costs.

Research, development and engineering expenses decreased to $2.6 million
for the nine months ended September 30, 2017, compared to $2.8 million
for the nine months ended September 30, 2016. The decrease was due to
lower engineering costs in internal research for Luna's Terahertz
product as more engineering time was spent on externally funded research
activities and, accordingly, included in Luna's technology development
cost of revenues.

Net loss from continuing operations improved to $(0.3) million for the
nine months ended September 30, 2017, compared to $(3.0) million for the
nine months ended September 30, 2016. Net income from discontinued
operations was $14.5 million for the nine months ended September 30,
2017, compared to $0.3 million for the nine months ended September 30,
2016. Net income from discontinued operations for the nine months ended
September 30, 2017, included an after tax gain of $15.1 million
recognized on the sale of the HSOR business offset by an after tax loss
of $(0.6) million related to the operations of the HSOR business prior
to its sale. Net income from discontinued operations for the nine months
ended September 30, 2016, included the after tax income related to the
operations of the HSOR business during the period.

Net income/(loss) attributable to common stockholders improved to a net
income of $14.1 million for the nine months ended September 30, 2017,
compared to a net loss of $(2.8) million for the nine months ended
September 30, 2016. Adjusted EBITDA increased to $1.2 million for the
nine months ended September 30, 2017, compared to $(1.2) million for the
nine months ended September 30, 2016.

Non-GAAP Measures

In evaluating the operating performance of its business, Luna’s
management considers Adjusted EBITDA, which excludes certain charges and
credits that are required by generally accepted accounting principles
(“GAAP”). Adjusted EBITDA provides useful information to both management
and investors by excluding the effect of certain non-cash expenses and
items that Luna believes may not be indicative of its operating
performance, because either they are unusual and Luna does not expect
them to recur in the ordinary course of its business or they are
unrelated to the ongoing operation of the business in the ordinary
course. Adjusted EBITDA should be considered in addition to results
prepared in accordance with GAAP, but should not be considered a
substitute for, or superior to, GAAP results. Adjusted EBITDA has been
reconciled to the nearest GAAP measure in the table following the
financial statements attached to this press release.

Conference Call Information

As previously announced, Luna will conduct an investor conference call
at 5:00 pm (EST) today to discuss its financial results for the three
and nine months ended September 30, 2017, and recent business
developments. The call can be accessed by dialing 844.578.9643
domestically or 270.823.1522 internationally prior to the start of the
call. The participant access code is 2469766. Investors are advised to
dial in at least five minutes prior to the call to register. The
conference call will also be webcast live over the Internet. The webcast
can be accessed by logging on to the “Investor Relations” section of the
Luna website, www.lunainc.com,
prior to the event. The webcast will be archived under the “Webcasts and
Presentations” section of the Luna website for at least 30 days
following the conference call.

About Luna

Luna Innovations Incorporated (www.lunainc.com)
is a leader in optical technology, providing unique capabilities in high
speed optoelectronics and high performance fiber optic test products for
the telecommunications industry and distributed fiber optic sensing for
the aerospace and automotive industries. Luna is organized into two
business segments, which work closely together to turn ideas into
products: a Technology Development segment and a Products and Licensing
segment. Luna's business model is designed to accelerate the process of
bringing new and innovative technologies to market.

Forward-Looking Statements

The statements in this release that are not historical facts constitute
“forward-looking statements” made pursuant to the safe harbor provision
of the Private Securities Litigation Reform Act of 1995 that involve
risks and uncertainties. These statements include Luna's expectations
regarding the high growth potential within Luna's strategic initiative.
Management cautions the reader that these forward-looking statements are
only predictions and are subject to a number of both known and unknown
risks and uncertainties, and actual results, performance, and/or
achievements of Luna may differ materially from the future results,
performance, and/or achievements expressed or implied by these
forward-looking statements as a result of a number of factors. These
factors include, without limitation, failure of demand for Luna's
products and services to meet expectations, technological challenges and
those risks and uncertainties set forth in Luna’s periodic reports and
other filings with the Securities and Exchange Commission ("SEC"). Such
filings are available on the SEC’s website at www.sec.gov
and on Luna’s website at www.lunainc.com.
The statements made in this release are based on information available
to Luna as of the date of this release and Luna undertakes no obligation
to update any of the forward-looking statements after the date of this
release.

Luna Innovations Incorporated

Consolidated Statements of Operations

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

(unaudited)

(unaudited)

Revenues:

Technology development

$

4,590,054

$

4,118,245

$

13,428,428

$

11,772,731

Products and licensing

7,052,094

7,066,908

19,593,648

18,301,631

Total revenues

11,642,148

11,185,153

33,022,076

30,074,362

Cost of revenues:

Technology development

3,491,840

3,068,360

10,045,261

8,986,312

Products and licensing

3,617,547

3,758,765

10,201,459

9,954,987

Total cost of revenues

7,109,387

6,827,125

20,246,720

18,941,299

Gross profit

4,532,761

4,358,028

12,775,356

11,133,063

Operating expense:

Selling, general and administrative

3,256,074

3,816,679

10,345,964

11,296,389

Research, development and engineering

833,811

812,050

2,581,473

2,789,801

Total operating expense

4,089,885

4,628,729

12,927,437

14,086,190

Operating income/(loss)

442,876

(270,701

)

(152,081

)

(2,953,127

)

Other income (expense):

Other expense

(3,389

)

(231

)

(4,258

)

(1,904

)

Interest expense

(55,099

)

(71,991

)

(179,860

)

(237,081

)

Total other expense

(58,488

)

(72,222

)

(184,118

)

(238,985

)

Income/(loss) from continuing operations before income taxes

384,388

(342,923

)

(336,199

)

(3,192,112

)

Income tax (benefit)/expense

(130,977

)

44,797

(63,350

)

(173,801

)

Net income/(loss) from continuing operations

515,365

(387,720

)

(272,849

)

(3,018,311

)

Gain on sale, net of $1,508,373 of related income taxes

15,096,666

—

15,096,666

—

Income/(loss) from discontinued operations, net of income tax
(benefit)/expense of $(349,515), $(35,095), $(349,515), and
$209,678.

145,293

(57,358

)

(644,241

)

342,685

Net income/(loss) from discontinued operations

15,241,959

(57,358

)

14,452,425

342,685

Net income/(loss)

15,757,324

(445,078

)

14,179,576

(2,675,626

)

Preferred stock dividend

33,699

28,941

97,331

74,731

Net income/(loss) attributable to common stockholders

$

15,723,625

$

(474,019

)

$

14,082,245

$

(2,750,357

)

Net income/(loss) per share from continuing operations:

Basic

$

0.02

$

(0.01

)

$

(0.01

)

$

(0.11

)

Diluted

$

0.02

$

(0.01

)

$

(0.01

)

$

(0.11

)

Net income/(loss) per share from discontinued operations:

Basic

$

0.55

$

0.00

$

0.52

$

0.01

Diluted

$

0.47

$

0.00

$

0.52

$

0.01

Net income/(loss) per share attributable to common stockholders:

Basic

$

0.57

$

(0.02

)

$

0.51

$

(0.10

)

Diluted

$

0.48

$

(0.02

)

$

0.51

$

(0.10

)

Weighted average common shares and common equivalent shares
outstanding: